Tesla’s Solar Loan: Everything You Need to Know

September 12, 2023

Tesla may be killing it in the electric car game ? but is their expansion into the solar industry worth looking into? Tesla started offering solar panels in 2016, under the leadership of Elon Musk, after the company acquired SolarCity. Tesla solar's popularity gained traction in recent years.

Even though Tesla is known for its low solar installation prices, going solar through Tesla is still expensive. We get it ? not everybody has thousands of dollars lying around to buy an entire solar system. For most homeowners, financing is the only affordable option.

Tesla offers its own solar loan as a financing option, so you don't have to worry about a separate loan provider to finance your system. But, interest rates across the country have been through the roof, and it's hard to tell what loans are actually worth using, especially when it comes to solar.

If you're unsure about Tesla, look no further. We're here to present you with the facts about Tesla's solar loan so you can see if Tesla solar is right for you.

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Tesla's solar loan at a glance:

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How do solar loans work?

Before we get into the details of Tesla's solar loan offer, you may be thinking, how does a solar loan work? Solar loans are a payment option for those looking to invest in panels but choose to pay them off in installments rather than all in one lump sum.

There are typically a few requirements you might need to meet to be approved for a solar loan. Bottom line ? banks and providers like to be sure that the loan they're giving out will be paid back on time. So, being in good financial standing and having a good credit score is a must!

Depending on the provider, you might need to put in a minimum down payment before paying your monthly installments. You'll be quoted an amount to pay each month over a chosen term length. Included in this monthly payment is an interest rate and dealer fees.

As of 2023, interest rates on unsecured solar loans with dealer fees average between 2.99% and 5.99% APR. Dealer fees are usually determined by the APR percentage — typically the lower the percentage, the higher the dealer fee, and vice versa.

It's pretty standard in the industry for solar loans to have term lengths ranging between 15 to 20 years, but 25-year loans are becoming increasingly common.

Where can you get a solar loan?

When it comes to getting a loan to finance your panels, you have a few different options.

You can get a loan from a solar-specific financing provider, a personal loan from your bank, PACE loans, or a home equity line of credit (HELOC).

Important note: PACE loans are only available to homeowners in California, Florida, and Missouri.

What is Tesla's solar loan?

You can figure out your loan options directly on Tesla's website when you place an order for panels. After designing your system through Tesla's estimator, you can select either a cash or loan payment option.

When you choose the loan, you can see what you can expect to pay on a monthly basis ? before and after incentives! Here are a few features of the Tesla loan:

Down payment

Many solar loans offered today don't require a down payment. Tesla, however, does. Tesla requires a minimum down payment equal to 10% of the total cost of the system. The payment is due after your home is inspected and your utility gives you Permission to Operate (PTO).

One important thing to remember is that this down payment is permitted under the assumption that the borrower has excellent credit, so make sure you check your credit score before making any moves.

Loan term

Loan terms refer to the period of time you have to repay your loan for your solar system. Tesla currently offers 10-year and 15-year options.

The difference between the two is simple ? a shorter loan term will have higher monthly payments but a lower interest rate. A longer loan term will have lower monthly payments, but you'll be paying more interest in the long run.

Interest rate

One of the biggest headaches when it comes to a loan is high-interest rates. Interest is essentially the "fee" you pay for borrowing money.

Currently, Tesla's 10-year solar loan comes with a 6.99% APR, while the 15-year option comes with a 7.32% APR.Interest rates are subject to change and may vary depending on your credit score.

The best option for you depends on your monthly budget. Either way, the solar panels will lower your energy costs and save you money over the years. Be sure to weigh out the pros and cons of both before making a decision.

Payment options

Tesla has made payment options pretty simple ? so you shouldn't worry about ever missing a payment.

The easiest option is to pay directly through your Tesla account, where you can enroll in automatic payments or by making one-time payments each month. If you don't have access to the internet or just simply don't prefer it; you have the option to pay over the phone as well.

You'll notice when you go to order solar panels through Tesla there is an estimated loan payment before and after prepayment.

This prepayment amount is the estimated amount you'll pay monthly after applying your 30% federal solar tax credit to your outstanding balance, lowering your monthly payments. Note that this amount isn't applied right away, you get credited at the end of the tax year!

Keep in mind: When you go to order solar panels under Tesla's ‘loan' option, the financed amount is the total cash price of the system after any upfront rebates are considered. The value of your federal tax credit is not included in the financed amount.

Tesla's solar financing is only available for residential solar installations in select states: AZ, CA, CO, CT, DE, FL, GA, HI, IL, MA, MD, NH, NJ, NM, NV, NY, OR, PA, RI, TX, UT, VA, VT, and WA.

You must also pass Tesla's credit check. There are no loan financing options for Tesla commercial installations.

How does Tesla's solar loan compare to other financing options?

Tesla's solar loan isn't the only financing option out there. How does it hold up against other loan providers?

Some top solar financing companies include Mosaic, Sunlight Financial, and Goodleap. Our 2022 Solar Industry Survey revealed the best solar loan options have terms between 15 and 25 years and have APRs that range from 3.95% to 7.00%. These numbers were from early 2023. Since then, interest rates have continued to climb, so it's likely average APRs now are much higher.

Traditional solar loans also include something called “dealer fees”, which can add 20% or more to your total financed amount. The dealer fee is rolled in to your financed amount, and usually makes the APR lower.

Disclaimer: We are not financial advisors, and the advice we give here is purely for informational purposes. Before deciding to invest in a solar system, you should speak with a trusted financial advisor.

So as far as Tesla financing goes, it falls in line with what other solar financing companies are offering. With how interest rates are spiking now, it may actually be on the lower end. Tesla's loan also has shorter term lengths, which means you pay off the loan sooner, but your monthly payments may be a bit higher, making it hard to find something that fits in your budget even if it does make more long-term financial sense.

The biggest benefit of Tesla's solar loan is that it does not have dealer fees. You get the same APR, without worrying about an additional 20% or 30% on your cost. Overall, Tesla's loan is an attractive offering when you just look at the numbers.

Can you use other financing options when you purchase Tesla solar panels?

The short answer is yes.

If you're not crazy about Tesla's loan options, whether it's because you found a better solar loan or you want to opt for a personal loan, you have the freedom to choose a different financing method.

According to Tesla, you are more than welcome to explore third party financing options when you invest in their solar panels. You would simply just select the 'cash' option for payment and pay with your third-party loan after the system is installed and passes inspection.

Tesla's solar loan vs. cash purchase

The chart below outlines the major differences between financing your Tesla solar system through their loan option as opposed to buying your system in full with a cash purchase.

  Loan Cash
Upfront amount due 10% down payment Full cost of system due after the system clears inspection
Monthly payments Yes, first payment due 35-days after PTO No monthly payments
Interest rate 6.99% APR* None
Incentives Yes Yes
Ownership of system Yes Yes

*APR varies depending on loan term and credit score

As you can see, paying off your system in cash is much less of a hassle, and you save more over the solar panels' lifetime because you aren't paying any interest. However, financing isn't necessarily a bad option. In fact, it's often the only way homeowners can go solar.

Solar loans, unlike third-party financing options like leases or PPAs, allow you to retain full ownership of your solar panels. This means you are entitled to any state or utility solar incentives, along with the federal tax credit.

The chart below is an example of what a Colorado resident would be quoted from Tesla based on a 9.315 kW system.

  Cash 10-year loan 15-year loan
Upfront cost $19,170* $2,739 $2,739
Monthly payment (Year 1) $0 $286 $226
Monthly payment (Remainder of loan term) $0 $184** $148**
Total system cost $19,170 $26,043 $30,315
Est. net electric bill savings $33,445 $18,295 $11,935
Est. payback period 9 years 12 years 14 years

*Interest includes federal tax credit

**After tax credit prepayment

With a cash purchase, the total cost of your solar panel system is much less because you don't have to pay interest over time. This also means you get better electricity bill savings, as your system is paid off sooner.

With the 10-year loan, you still have a decent payback period of 12 years, but you pay a few thousand dollars in interest and have monthly loan payments that could be higher than your current electricity bills. But, after 10 years, your system will be paid off and you'll be on your way to free electricity.

The 15-year option gives you the worst savings and the longest payback period, but you have lower payments month to month. You do still see some net savings, but it's a fraction of what you could save if you went with a cash purchase.

Bottom line: Is Tesla's solar loan worth it?

Tesla solar panels have steadily gained popularity and don't seem to be going anywhere anytime soon. So, if you're shopping around for panels, it can't hurt to try out Tesla's solar estimator.

All things considered, their financing option competes with others on the market, especially with the current state of interest rates and dealer fees. In fact, things with solar loans are getting so expensive that solar leases and PPAs are becoming a more appealing option.

Though Tesla Energy's financing is competitive, it doesn't exactly have the best reputation when it comes to customer service. Homeowners have reported poor communication and little after-sales support, which is crucial when you're making a 25-year investment like solar panels.

To make sure you get the best deal and installation possible, we recommend getting quotes from multiple installation companies, not just Tesla. Then you can compare quotes and get a feel for the companies to decide who you ultimately want to get into a decades-long relationship with.

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This content was originally published here.

Tesla’s Solar Loan: Everything You Need to Know